Is it a trap or am I over thinking it?

Question

I have been looking at foreclosure homes on the MLS and am wondering if there is any easy way to estimate plumbing and electrical costs looking at a house that does not have water or electricity on? I am trying to avoid the surprise of missing pipes or major electrical jobs. Do you have any pointers on what to look for to at least avoid the big ticket losses?

Alternatively do some of you put in an offer assuming they are good but subject to inspection? If so do you have an inspector look at this for you or do you get a plumber/ electrician to come out and look at these?

Alternatively do some of you put in an offer assuming they are good but subject to inspection?  If so do you have an inspector look at this for you or do you get a plumber/ electrician to come out and look at these?

Matt M. · Answer

@Aaron White

When I buy, or my investor clients buy, we don’t bother with inspections or utilities on. When you’ve done enough foreclosures you just realize they are what they are. Some there are no issues, some there are.

Lynnette E. · Answer

All my repairs were PEX, except for the water heater, and there is was a metal flex line.  Building inspector was happy, so I am too!

@Aaron White

Lynnette E. · Answer

If you put an inspection requirement in a foreclosure they will not take your offer.

I have bought a few foreclosures and can tell you it is a gamble, just make your offer low enough to deal with it.  An example:

A 4 unit apartment I just bought has 3 water units.  When the city turned the water on 2 units had to be turned off immediately.  The city water men looked to see where the fully running water was leaking from.  There were obvious cut pipes in one area and water coming up from under a wood shelf like structure for the other unit.  The other ends of the pipes were somewhere up in the ceiling.   Plumber found about 2 sections of 12 feet of metal pipe missing.  Replaced that, turned on the one water system, still water was running at full force.  Found another area coming off the water heater where the cooper pipe was cut and about 10 feet missing, plus the water heater was ruined from how they cut the pipe. And yes, the other end was pulled off from somewhere up in the ceiling.   Replaced that pipe in that unit, the kitchen facet that leaks, drain to the dishwasher was ripped, dishwasher is missing, laundry sink smashed around the facet, which was hit with a hammer.  Did  not get to the bathroom yet.  That was today's work.

The system that was ok needs a new kitchen facet, dishwasher, laundry room sink, drain and facet, and the toilet, still not sure, does not drain.  Plumber working on figuring it out...tomorrow.

The other unit that serves 2 apartments we did not look at yet.  Tomorrow and Friday are coming, not sure if it will be done this week or not.

The electrical, well, they did leave some metal fixtures for the long fluorescent lights in the patio.  All the other light fixtures were recycled with the cooper plumbing.  I spend about $3k on lighting fixtures in the past 2 days.  Hoping to get them all installed next week.

Plus odor removal (smoking in 2 units with acoustical ceilings removed and that will be replaced, plus kilz everywhere on the floors and walls, and what smells like a dead dog, with urine and feces in another apartment), completed carpet removal and am starting painting and need new appliances.

Oh, and some electrical things are on movable plywood panels, that will need to be dealt with.

Pretty total rehab.  except keeping cabinets for now.  (Budget decision).

But 'high' figuring $13k appliances, $6k plumbing, $5k electrical, $2k paving/cement work, $2k painting (kids and me labor), $12k new flooring (kids and me labor), and  new roof, $14k (done!!).  initial cost for apartment was about $135k gets total cost $189k.  Hoping rent will be over $2500/month, estimating as 2 apartments share utility, so I will have to pay for their utilities...hate that!.  Its rural TN, rents are low.

So, even though there were a bunch of things wrong, I had planned on it and had money to deal with it in the plan.  I just did not know exactly where they money would go, just 'somewhere' because foreclosures almost always have issues!

Oh, and in the future, I may convert the garage to an apartment.  It already has a kitchen, bathroom and dining room as separate rooms off the garage.  Just need to clear out our supplies and make the actual garage part into a living room and bedroom.

Aaron Poling · Answer

Its difficult to estimate accurately without having the utilities on to test. If you can't test the utilities prior to getting under contract you have two options: First you can make an offer assuming the worst possible estimates and make your sales price reflect that or Second you could assume the best and go in with a higher sales price, and then have your inspection after you get under contract and then cancel the contract if the inspection is too bad. I would only do the second option if there are multiple offers and you feel like you have to go in higher to win the bid.

If the property doesn't allow inspections, or won't allow the utilities to ever be turned on then definitely bid assuming the worst to keep your risk low.

Good Luck, Aaron

If the property doesn't allow inspections, or won't allow the utilities to ever be turned on then definitely bid assuming the worst to keep your risk low.

Good Luck, Aaron

Aaron White · Answer

Thank you all.  I appreciate the input.  From what it sounds like most of you are just fixing what is broken.  Would that be correct?  The last house I did had leaks and I re-did the entire plumbing system with pex per the plumber's recommendation :-)

If you are doing patch repairs, do you use PVC with galvanized pipe?  I would think the temperature changes would cause trouble and if that is not the case then will lenders approve an inspection where this is noted?

Ned Carey · Answer

@Matthew Paul yes I know but in residential housing Romex is the current standard and I suspect code. If you see BX cable in a SFH it is a pretty safe bet it is older wiring.

Kenneth Garrett · Answer

@Aaron White

I have bought a number of foreclosures and always assume I will be conducting repairs to each.  Many times there are no utilities on and they will not allow you to turn them on.  You must assume repairs will need to be made.  At  times the water has been winterized, but, be cautious of this.  Look at the date it was winterized especially in the cold climates.  They tend to winterize after the damage has been done.  Look at the history of the property when foreclosure took place and when they winterized.

You have to budget for repairs.  I still leave the inspection contingency in the contract knowing I am buying whereas, where is.  I have not been very successful on multiple offers.  Someone is usually willing to pay to much in my opinion.  That’s ok.  Watch the property, there are times they become reactivated because the buyer realized the dollar value of repair.  You also get Investors making offers site unseen and try to negotiate after the contract is signed.  Personally not a fan of this.  You can’t make a proper offer with pictures only.  This is why it returns reactivated.

Good Luck

Jason D. · Answer

@Aaron White you can write in an inspection clause and pay to have the water turned on for inspection. Call the utility company so see what is needed to make it happen.

Matthew Paul · Answer

@Ned Carey   They still make BX cable

Damaso Bautista · Answer

@Aaron White

I do the exact opposite and plan for the worst case scenario.

This is why it is important to have some trusted contractor or handyman that you have 100% confidence in.  I have a couple that have been in the business for many years, have tons of contacts for whatever repairs that need to be done.

In a case where I wouldn't have a chance to inspect, I would sit down with my trusted handy man and go over the details of the house.  I would list everything that might need to be fixed.

Going over that list my trusted person can give me a very close figure about how much it would cost to replace the system. These include: new electrical, new plumbing, new HVAC, new roof, new window, painting inside and out and so on.

I get a great ball park figure about what it would cost to basically do a complete rehab of the home.

I then make a plan including the worst case scenario which is having to do everything new.

After you have that you can run the numbers for different scenarios.  The best being that you have nothing to replace or repair and can just put it in service all the way to having to do a complete rehab.

After doing this you will have a real good idea what the numbers look like for everything in between and then you can make an informed decision what makes sense for you financially.

This is what I do at least.

I hope this helps.

Good Luck!

Is it a trap or am I over thinking it?

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